Signs that the conflict between Russia and Ukraine is cooling led to a rally in U.S. stocks that erased losses from earlier in the week. European equities capped a more than 10 percent drop from recent highs.
21st Century Fox Inc. jumped 7.6 percent as earnings topped analysts’ estimates and the company dropped its $75 billion bid for Time Warner Inc. The unraveling of proposed mergers and a reassessment of the tax treatment of a third sent shares of Time Warner, Sprint Corp. and Walgreen Co. tumbling more than 12 percent. Warren Buffett’s Berkshire Hathaway Inc. climbed 4 percent as results improved at its operating businesses.
The Standard & Poor’s 500 (SPX) Index climbed 0.3 percent in the five days to 1,931.59, rebounding from the steepest weekly drop in more than two years. The Dow Jones Industrial Average gained 60.56 points, or 0.4 percent, to 16,553.93. The Stoxx Europe 600 Index tumbled 2.1 percent, with German and French markets entering a correction.
“In order for a market to build again, you need these pullbacks,” Quincy Krosby, a market strategist for New Jersey-based Prudential Financial Inc., said in a phone interview. “They help to burn off flaws in the market and set the stage for the next leg up.”
The S&P 500 fell as much as 1.1 percent in the period before rallying 1.2 percent during the final session for its best day since March 4. RIA Novosti reported that Russia seeks a de-escalation of the conflict in Ukraine and Interfax said military exercises near the Ukraine border are over. The S&P 500 is still down 2.8 percent from a record on July 24.
In Europe, the Stoxx 600 capped the first back-to-back weekly losses since March, as European Central Bank President Mario Draghi said that geopolitical risks in countries such as Ukraine could hurt the economic recovery. Data in the week showed German industrial output grew less than forecast in June, while a report indicated Italy unexpectedly slipped back into recession.
The standoff between Russia and the U.S. and its allies has escalated into the worst such conflict since the Cold War. Russia massed troops along its border with Ukraine, prompting the U.S. to say there’s a risk of an invasion. President Vladimir Putin ordered restrictions on food imports to strike back at countries that have imposed sanctions on Russia.
The S&P 500 came within 60 points of wiping out its gains for 2014 as it closed on Aug. 7 below its 100-day moving average for the first time since April. The Dow bounced back after touching its average price in the past 200 days.
“When you see the geopolitical news in Russia and the Middle East, it’s horrible from a humanitarian point of view for U.S. equities, but how bad is it for U.S. economic fundamentals?” Michael Purves, chief global strategist and head of equity derivatives research at Weeden & Co. in Greenwich, Connecticut, said in a phone interview. “It’s pretty distant.”
Economic data during the week showed that service industries in the U.S. expanded in July at the fastest pace since December 2005. A separate report indicated jobless claims in the past month dropped to the lowest level since early 2006.
The results added to signs that the world’s largest economy was strengthening at the start of the third quarter after data in the prior week showed employers added more than 200,000 jobs for a sixth straight month in July.
The Chicago Board Options Exchange Volatility Index (VIX), a gauge of investor concern derived from options prices, fell 7.4 percent to 15.77. The VIX surged 34 percent in the previous week for its largest gain since January.
Six of the 10 main S&P 500 groups advanced in the week, with producers of consumer-discretionary products adding 1.1 percent to pace gains. Phone stocks sank 2.1 percent for the steepest drop.
21st Century Fox rallied 7.6 percent for the best week since January 2013. The film and TV company led by Rupert Murdoch rose after reporting profit that topped analysts’ estimates and saying it’s in no rush to do deals after dropping a $75 billion bid for Time Warner.
Time Warner shares sank 13 percent, as the failed deal overshadowed second-quarter profit that beat analysts’ estimates.
Sprint plunged 24 percent. The company ended talks to acquire T-Mobile USA Inc., a person with knowledge of the matter said, as regulatory concerns outweighed the potential benefits. T-Mobile sank 10 percent.
Walgreen lost 14 percent. The biggest U.S. drugstore chain said it plans to pay about $15.3 billion for the part of Alliance Boots it doesn’t already own, and won’t use the deal to move its tax address abroad. Walgreen, which considered redomiciling overseas to lower its tax rate, has come under political pressure not to do a so-called tax inversion.
L Brands Inc., which sells women’s apparel and beauty products, gained 9.3 percent after July sales topped forecasts. Bag-maker Coach Inc. jumped 8.9 percent after reporting sales that beat analysts’ estimates. Gap Inc. advanced 6.4 percent as the retailer’s earnings and revenue surpassed projections.
The S&P 500 has gone without a 10 percent correction since 2011. It trades at 17.5 times the reported earnings of its companies, falling from a four-year high of 18.3 in June.
In Europe, the Stoxx 600 fell to the lowest level since March. Germany’s DAX Index dropped for a third straight week, ending 10 percent lower than its record reached July 3 and meeting the common definition of a correction, while France’s CAC 40 Index lost as much as 10 percent since its six-year high in June.
Asian equities sank, with losses accelerating on the final day of the period after Obama authorized strikes in Iraq. The MSCI Asia-Pacific (MXAP) Index dropped 2.4 percent in the week to a seven-week low. Japan’s Topix lost 4.1 percent, its worst since April.
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